Conseco Inc. has undergone rapid change in Gary Wendt's brief tenure as chairman and CEO. In 10 months at the helm of the Indianapolis-based insurance and consumer finance company, Wendt has overseen the disposal of $1.7 billion of assets-including a $122 million stake in the Argosy Gaming riverboat-and the elimination of 2,000 jobs at Conseco Finance.In April, the company stepped up its efforts to rein in expenses by announcing plans to shift some of the company's call center servicing and back-office processing to India. Related to this decision, Conseco is acquiring exlService, a firm specializing in these functions which is based in Hyderbat, India.
The deal calls for Conseco to acquire nearly 12 million shares of exlService in exchange for about 3.4 million shares of Conseco's common stock. The transaction is valued at $52.6 million.
Conseco executives informed 2,000 employees in at least five locations-Indiana, Chicago, South Dakota, Philadelphia and St. Paul-that their jobs would shift to exlService over the next 21 months. The company estimates that the number of employees who will be let go will be minimal, given the high annual turnover rate among call center representatives.
The jobs that are affected involve inbound and outbound call center operations, and back-office fulfillment such as inputting address changes, account reconciliation and loan request processing.
"We have averaged close to 30% annual turnover with these positions in recent years, so we're not anticipating any major layoffs during the next 21 months," says David Gubbay, executive vice president for strategic business development at Conseco.
Conseco estimates that it will save between $30 million and $60 million a year by shifting these customer service operations to exlService. A company spokesman says Conseco spends about $40,000 a year for the customer-service employees, compared with about $24,000 in India.
"The employees in India are university graduates who speak English very well and view these positions as career opportunities," Gubbay says. "The turnover rate by comparison is only around 5%."
ExlService was founded in 1999 by a group of investors that included Wendt, who at the time had retired as CEO of GE Capital Corp. Since its founding, exlService has had two rounds of venture financing, the most recent completed in early 2000 when $8.1 million was raised in exchange for a 22% stake in the company. ExlService has 315 employees and provides services to four customers, including a credit card processor, a brokerage and a Top Five accounting firm. Gubbay declined to reveal the names of the firms.
Wendt and his wife own 20% of exlService and his relatives own an additional 9.4%. Wendt will receive $9.75 million in shares of Conseco stock for his stake. However, a stipulation of the agreement prohibits Wendt from receiving those proceeds unless Conseco recovers the $52.6 million acquisition cost through cost savings achieved from the venture or from profits that exlService achieves from its contracts with other companies.
Gubbay defended the decision to purchase the company by saying that it would have cost Conseco more to contract with exlService rather than purchase it "because we don't have to pay their profit margins."
Although the incentive to switch customer servicing functions to exlService is largely related to cost reductions, the company says that improved customer service factored into the decision.
"By far the largest single productivity and customer service quality project is our movement of 2,000 customer service and back-room positions to India," Wendt states in an April 24 memo to shareholders announcing the company's first-quarter operating results. "We will not over-reduce, but build higher quality into our customer service operations-an absolute must in an increasingly competitive financial services market."
Customers who dial Conseco's toll-free number will be routed directly to India via a fiber optic line. Conseco also is using fiber optics to connect exlService employees to Conseco's back-end information systems.
"With this move, we can look at our processes and the way we approach customer service and then implement improvements," Gubbay says. "We will employ a quality workforce that we can keep for a longer period of time."
Although the time difference between India and Indianapolis could pose some problems, it hasn't prevented other companies from outsourcing their customer service operations to India. "It's actually worked well for some major players like Fidelity," says Richard Roby, director of insurance industry research for TowerGroup, Needham, Mass. "The labor costs there are dirt cheap by comparison, and they have a well-educated workforce that is more stable than what you'll find here."
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